PRECIOUS-Gold posts biggest one-day gain in 3 weeks

* Dollar drop, equities rise fuel gold investor appetite

* Uncertainty related to Greece debt crisis supports

* US debt talks, end of QE2 in focus

* Coming up: U.S. May existing home sales on Tuesday

(Recasts, adds comments, updates market activity, new byline, changes dateline, previously LONDON)

By Frank Tang

NEW YORK, June 17 (Reuters) - Gold rose nearly 1 percent on Friday, notching its biggest one-day gain in three weeks, as a sharp dollar drop amid an outline agreement to aid debt-burden Greece boosted investor appetite across the board.

A string of recent lackluster U.S. economic data, worries Greece's debt crisis may escalate and uncertainty related to U.S. debt ceiling talks also lifted the metal for a small weekly gain. Bullion is up nearly 5 percent in the past 30 days.

Gold accelerated gains after mixed U.S. data point to a wobbly economic recovery. U.S. consumer sentiment worsened more than forecast in June on continued economic pessimism, but a key measure of future U.S. economic activity rose more than expected in May to a record high. [ID:nN17281627] [ID:nN17219319]

"We are seeing a return to risk as the equity market was up and the dollar is down. Obviously, gold is reacting to that well," said David Meger, director of metals trading at Vision Financial Markets.

Spot gold was up 0.6 percent to $1,536.89 an ounce by 2:36 p.m. EDT (1836 GMT), its strongest one-day rally since May 27 when it surged 1.1 percent.

U.S. August gold futures settled up $9.20 at $1,539.10 an ounce, after trading between $1,523.20 and $1,543 an ounce.

Trading volume was almost half of its 30-day average, preliminary Reuters data showed, consistent with recently lower levels as investors switched their focus on the equity markets.

Silver was up 0.8 percent at $35.78.

Even as gold benefits from a disappointing U.S. economic outlook, the metal has failed to breach its record high $1,575 set in early May. Technical selling, a firm dollar combined with sliding crude oil prices have kept gold from rising further.

On Friday, investor sentiment improved after Greece's embattled prime minister replaced his finance minister to force an unpopular austerity plan, and as the euro rose on hopes for a new Greek aid package after Germany and France pulled together on a rescue approach. [FRX/]

(Graphic on the Euro zone crisis: http://r.reuters.com/hyb65p)

Bullion also drew support from worries over a European debt contagion. Moody's placed Italy's credit rating on review for possible downgrade.

U.S. DEBT TALK IN FOCUS

Participants of the gold market also focused on development over talks to reach a deficit-cutting agreement among U.S. lawmakers also underpinned gold.

The deal would allow Congress to raise the $14.3 trillion U.S. debt limit before Aug. 2, when the Treasury Department has warned it will run out of money to pay the government's bills, a development that could disrupt the economic recovery.

Negotiators said on Thursday they had tentatively agreed on a number of cuts and are now gearing up for tough trade-offs that could lead to trillions of dollars in savings. [ID:nN16185069]

Persistently low U.S. interest rates should also help gold, analysts said.

"The weakness in the U.S. economy shall give rise to concerns on the part of the Fed that more monetary stimulus to be brought forth, thus raising the prospects of QE3 once again," said independent investor Dennis Gartman.

The end of a $600 billion U.S. government bond-buying program, or the second round of quantitative easing dubbed as QE2, this month is also fueling economic worries.

Among platinum group metals, platinum was down 0.1 percent at $1,751 an ounce, while palladium slipped 0.9 percent to $745.72 an ounce. For the week, palladium was down more than 6 percent on worries over the pace of economic recovery. Prices at 2:36 p.m. EDT (1836 GMT)

LAST/ NET PCT YTD

CLOSE CHG CHG CHG US gold 1539.10 9.20 0.6% 8.3% US silver 35.748 0.189 0.5% 15.6% US platinum 1752.10 -8.60 -0.5% -1.5% US palladium 743.70 -17.80 -2.3% -7.4% Gold 1536.89 8.54 0.6% 8.3% Silver 35.78 0.29 0.8% 15.9% Platinum 1751.00 -1.20 -0.1% -0.9% Palladium 745.72 -6.68 -0.9% -6.7% Gold Fix 1537.50 11.25 0.7% 9.0% Silver Fix 35.39 -16.00 -0.5% 15.5% Platinum Fix 1751.00 4.00 0.2% 1.2% Palladium Fix 754.00 10.00 1.3% -4.7% (Additional reporting by Marie-Louise Gumuchian in London; Editing by Marguerita Choy)